MORNING BID – Laboring for insights

Sep 4, 2014 13:02 UTC

The unemployment report occupies a unique position as a bit of a lagging indicator (especially when it comes to wage growth) and yet the most important economic figure that markets look at on a monthly basis. Various indicators point to the likelihood of another strong report come Friday that should accelerate recent trends in markets – more gains in the stock market (with a helping of the “this means the Fed is going to cut us off from the punch bowl blah-blah” stuff) and more strength in the dollar, regardless of whatever incipient gains the euro can muster after the European Central Bank meeting.

Underlying indicators to watch suggest that the U.S. economy has started to move more dramatically higher, whether it’s from the Federal Reserve’s Beige Book or Goldman Sachs’ analyst indicator, a composite of analyst commentary that functions as sort of a “corporate Beige Book.”

Some of the striking data out of this include better-than-expected strength in the consumer spending area, where Goldman expects consumption to rise to about 2.5 to 3 percent over the rest of the year. Their index is above 60 now for the fourth month running – like the ISM data, 50 signals growth – and they’re seeing particularly good strength in new orders and sales/shipments, also pointing to better demand.

That should translate once again to more hiring as the economy moves into the middle of this expansion, one that didn’t see the post-recession pop that many expected and instead as a substitute has put together a long, grinding string of more than 60 months of steady but unspectacular growth.

With the recent shift in jobless claims to a consistent figure around 300,000 on a weekly basis – and sometimes lower – and consumer confidence rebounding, the key figure to watch on Friday is probably again the U-6 figure on labor force underutilization, the broader measure of unemployment the Fed likes to look at rather than just the unemployment figure itself. Since the beginning of 2013, as the regular unemployment rate has dropped to 6.2 percent from 7.9 percent, the U-6 rate has dropped more sharply to 12.2 percent from 14.4 percent. The number of unemployed has dropped to 9.67 million from 12.32 million in that time. The labor force has been stubbornly stagnant, rising to 156.02 million from 155.69 million in Jan. 2013, and so the participation rate hasn’t budged all that much – it’s actually fallen to 62.9 percent from 63.6 percent, and the inability of people to get back into the labor force because they’re discouraged has been an Achilles heel for the jobs market since this recession ended.

There’s some hope this is changing, again, based on consumer confidence figures and manufacturing and service-sector surveys pointing to improved demand and confidence. And the Fed’s Beige Book pointed to specific job shortages – tech workers in the Boston region, truck drivers in New York – but still yet not enough to really suggest the increase in demand that brings out 300,000-plus jobs reports every month. For August, the expectation is for about 225,000 in nonfarm payrolls growth, and for earnings to rise 0.2 percent on the month.

MORNING BID – What’s all the Yellen about?

Jul 15, 2014 12:51 UTC

Rants from TV commentators aside, the market’s going to be keenly focused on Janet Yellen’s congressional testimony today, with a specific eye toward whether the Fed chair moderates her concerns about joblessness, under-employment and the overall dynamism of the labor force that has been left somewhat wanting in this recovery. The June jobs report, where payrolls grew by 288,000, was welcome news even as the economy continues to suffer due to low labor-force participation and weak wage growth.

Inflation figures are starting to show some sense of firming in various areas, for sure, but still not at a point that argues for a sharp move in Fed rates just yet. Overall, a look at Eurodollar futures still suggests the market sees a gradual, very slow uptick in overall rates – the current difference between the June 2015 futures and June 2016 futures are less than a full percentage point – not as low as it was in May of this year, but still lower than peaks seen in March and April 2014 and in the third quarter of 2013, before a run of weak economic figures and comments from Fed officials themselves scared people again into thinking that the markets would never end up seeing another rate hike, like, ever again.

Now the expectations for Fed moves have coalesced around late in the first half of 2015 for at least the first token rate rises, and it might even be a bit sooner depending on what happens with employment and inflation figures. On this front, Liz Ann Sonders of Charles Schwab points out that some of the leading and coincident indicators for the labor market look promising – noting that the jobless rate overall and the payroll figures are lagging indicators.

She points out that private-sector employment is up 9 percent since the end of the recession, outpacing the economy’s overall 5.9 percent growth rate – and that’s clearly due to a lot of local and state government austerity that was forced upon municipalities and other localities due to diving tax revenues and weak growth. Government employment didn’t finally trough until mid-2013, and has since started to come up a bit more, but it’s still down 3 percent from the end of the recession; the gains in private employment don’t completely obviate whatever need there is for government jobs and services – particularly if federal and state employment tends to be middle-class labor.

Job quits and layoffs figures are improving.

Job quits and layoffs figures are improving.

Other factors pointing to strength – the improvement in the JOLTS data, the job openings labor turnover survey, which shows job openings rising to levels consistent with the 2007 area – still not at the same level as it was in 2001 during the end of the tech boom, but much better than what’s been happening of late.

The “quit rate” also measured by JOLTS points to more people voluntarily leaving jobs – again, the 2.1 percent rate for private payrolls falls short of the 2.5 to 2.6 percent level during the end of the last boom and far from the 2.8-2.9 percent level back in 2001 – but it’s important enough that Yellen may modify some of her language. Given she’s learned pretty quickly to try to bore people to death after the “six months” remark that set people off, those looking for lots of news may be disappointed. But if there is to be any, it could be here.

from Data Dive:

What we know about income inequaliy: America’s disappearing ‘middle-skill’ jobs and falling wages

Feb 12, 2014 19:30 UTC

There are a lot of things that “explain” inequality. Technology, finance, societal, and cultural changes have all played their part. In this series, Counterparties takes a look at the various things that correlate with rising income inequality in order to ascertain how we got to this economy and where we might go from here. For story tips/comments/complaints email us

America is losing middle class jobs -- and middle class pay. Not only are "middle-skill" jobs disappearing as routine tasks become computerized (think everything people do in the television show "The Office"), but that job loss has contributed to stagnating wages, according to a recent paper by Michael Boehm of the University of Bonn.

This chart shows the changes in US employment shares by type of occupation since the end of the 1980s. The paper used two different measures, the National Longitudinal Survey of Youth (NLSY) and the comparable years and age group in the more standard Current Population Survey (CPS):

For this chart, the high-skill occupations comprise managerial, professional services, and technical occupations; middle-skill occupations are things like sales, office/administrative, and production occupations; and low-skill occupations include food, cleaning, and personal service occupations.

What Boehm found is that this erosion of middle-skill jobs is correlated with a similar erosion of middle-skill pay. This chart shows how wages were expected to grow back in 1980 (blue line), and how wages actually grew (red line):

Here's what Boehm says this mean:

What emerges unambiguously from my work is that routinisation has not only replaced middle-skill workers’ jobs but also strongly decreased their relative wages. Policymakers who intend to counteract these developments may want to consider the supply side: if there are investments in education and training that help low and middle earners to catch up with high earners in terms of skills, this will also slow down or even reverse the increasing divergence of wages between those groups.


Previously in this series:

What we know about income inequality: Better marriages may mean more inequality

A healthy workforce

Feb 4, 2014 22:49 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to

A new CBO report includes a somewhat startling stat: by 2024, the Affordable Care Act will reduce the the number of people doing full-time work by 2.5 million, compared to what it would have been otherwise. The report finds that this further shrinkage in America’s workforce will come entirely from people choosing to work less. The law “allows people to quit jobs they only still have because they are afraid of losing insurance”, says Karl Smith.

John Boehner, and many other Republicans, said the report shows the “devastating impact of Obamacare on jobs”. However, Glenn Kessler writes that “the CBO, in its sober fashion, virtually screams that this is not about jobs“. It’s about a reduction in work hours, which doesn’t necessarily mean that people are leaving the workforce completely. The CBO report shows that Obamacare is a mixed bag for the economy, Josh Barro argues. Ultimately, he says, the law insures that people can “make work decisions without worrying about how those decisions affect their health insurance”, which is a good thing. In a second post, Barro also says the ACA will end up pushing wages up.

Brad Plumer thinks the big story from the report is the worsening outlook on the American economy over the next decade. Budget deficits through 2023 are going to be higher, by about $1 trillion, than the government estimated last year. Annual GDP growth is going to be slower — 2.1% on average if we’re lucky. Further, many jobs lost during the recession still haven’t come back, and some never will.

Why Americans aren’t coming back into the labor force isn’t clear. In a separate report, the CBO estimates that about half of the drop in the labor force participation rate since the recession — to 62.9% today from about 66% in 2007 — has to do with demographic trends, like aging workers retiring, while the other half is a mix of cyclical and permanent unemployment.

Two Fed researchers, Samuel Kapon and Joseph Tracy, theorize that demographics, coupled with an overheated labor market back in 2007, can explain a lot of America’s shrinking labor force.  ”In other words, they find that if you correct employment numbers to reflect our aging workforce, we’re a lot closer to full employment than previously thought –  0.7 percentage points away, specifically.

Matthew Klein writes that Kapor and Tracy’s report “ignores the actual data we have on employment by age group”. For Klein, aging alone can’t explain why America’s labor force participation rate has fallen to near 30-year lows. Paul Krugman, meanwhile, finds that if you crunch the numbers his way, “around 40 percent of the decline is demographics, but the rest is cyclical, and that we’re still far below full employment.” — Shane Ferro

On to today’s links:

How hot money flows into and ends up abusing emerging economies – Izabella Kaminska

America’s abortion rate is at a 30-year low – Sarah Kliff

Tax Arcana
The difference between beating and missing earnings at IBM: Dutch tax havens – Alex Barinka and Jesse Drucker

The Fed
The Fed’s familiar predicament: spooking the market every time it tries to pull back – Tim Duy
Why monetary policy should ignore bubbles – Yichuan Wang
How econ PhDs took over the Fed – Justin Fox

Microsoft names Nadella as its new CEO, Bill Gates steps down as chairman – Kara Swisher

Right On
Young bankers today “say they’re moved to mend the world using capitalism’s wisdom” – Max Abelson

Your Retirement Plans
AOL is leading the way to make 401(k)s worse for everyone – Jia Lynn Yang

What’s Apple building in there? (Hint: internet infrastructure) – WSJ

“Kindreds, communes, feuds, and mating patterns in medieval France” – HBD Chick

America’s 10 most expensive insurance markets – Kaiser Health News

Crisis Retro
The tale of the national real estate market in six houses – NYT

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.


ObamaCare will destroy the USA and it’s culture of Freedom, Accountability, and Enterprise. The Swan song for America has been cast. Thank the USA news media and their puppet masters—Hollywood.

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from Data Dive:

The state of America’s unions

Ben Walsh
Jan 24, 2014 19:16 UTC

The percentage of American workers in unions was constant at 11.3% from 2012 to 2013, new data from the Bureau of Labor Statistics show. In 1983, the first year the BLS started collecting this data,  that number was 20.1%.

The rate of unionization among public-sector workers is five times higher than for private-sector workers, at 35.3% and 6.7%, respectively. In terms of occupations, education, training, library, and law-enforcement/first-reponse workers have the highest unionzation rate at 35.3%. Farming, fishing, and forestry workers have the lowest unionization rates at just 2.1%. There's also a very strong geographical split in unionization:

Here's the BLS:

30 states and the District of Columbia had union membership rates below that of the U.S. average, 11.3 percent, while 20 states had higher rates. All states in the Middle Atlantic and Pacific divisions reported union membership rates above the national average, and all states in the East South Central and West South Central divisions had rates below it.

In just three states -- New York, Alaska, and Hawaii -- is union membership above 20%. Washington State just misses the cut at 18.9%. New York has the highest membership rate in the country at 24.4%.